Part 5: Strategic Analysis Report on Implant Direct
Value-Chain Analysis of Implant Direct
This section of the report examines Implant Direct’s value-creating processes, such as the firm’s primary and support activities. The primary activities are inbound logistics, operations, outbound logistics, marketing & sales, and service. The support activities are general administration, human resources management, technology development, and procurement. Each of these elements are being examined in terms of their value, rare, and how difficult it is for the competitors to imitate or substitute. Lastly, as this section will also cover what competitive positioning and the strategy type that each of these activities support.
Table 3 - The Value Chain Process
Primary Activity
Inbound Logistics
Implant Direct’s global distribution center is in Las Vegas, NV. Since the distribution center is not far away from the company’s shipping partners, FedEx, UPS, and DHL’s trucks stop by throughout the day to ship the implant orders on a timely basis. The manufacturing plant in Thousand Oaks, CA is designed efficiently to utilize the available space fully. In doing so, the company can fit 40 CNC machines relatively close to each other. It is also worth mentioning that the manufacturing shop floor does not have space for any additional CNC machines. Thus, when Implant Direct needs to expand its manufacturing capacities, the company must build an additional plant.
Implant Direct’s inbound logistics is valuable, but not rare, inimitable, or without substitute. Inbound logistic is a source of competitive parity and supports price (cost control) strategy. Implant Direct’s relationship with its shipping carrier has empowered the company to utilize its relationship to save money when the company purchases raw material, and for its internal operations such as shipping the finished goods (implants) from the manufacturing hub, Thousand Oaks, CA, to the distribution hub, Las Vegas, NV.
Operations
Implant Direct strictly follows Danaher Business System (DBS), Six Sigma, and Lean manufacturing processes. Even though the manufacturing plant layout is designed in a way to promote efficiency and productivity, the company is required to perform kaizens a few times a year to continually improve the company’s operations and manufacturing processes.
Implant Direct’s operation is valuable. The operation is rare and inimitable as most companies in the industry do not have access to DBS model. However, since other companies (e.g., Straumann, Zimmer, Dentsply) may perform good operations, they may potentially offer substitutes. The operation is a source of temporary competitive advantage and support price (cost control) strategy. Kaizen, a Japanese word meaning process improvement, is designed to cut muda (waste) to promote efficiency and productivity which ultimately result in savings on costs.
Outbound Logistics
Most customers do not have the required storage per FDA guidelines to store the implant vials when they receive their orders. Thus, the customers place their orders with Implant Direct in a way that they must receive their orders as their patients show up for their surgeries. If the implant orders do not arrive on time, the doctor must reschedule the appointment, which will financially impact the doctor’s revenue for the day and the patient must take another day off from work. Implant Direct’s distribution center’s proximity with its shipping carriers has enabled the company to ship orders on time. The company has a Key Performance Indicator (KPI) to measure its on-time delivery (OTD) monthly. OTD metric is trending about 98.5 percentile for the past few years, which is well beyond Danaher’s expectation and the industry norm.
Implant Direct’s outbound logistics is valuable, rare, and difficult to imitate. However, it is not without substitute as other companies in the industry also provide competitive shipping rates and timeline to their customers. Outbound logistic is a source of temporary competitive advantage and supports price (cost control) strategy.
Marketing & Sales
Implant Direct’s marketing channels consisting of attending major trade shows, providing free education to the general practitioners who are currently not inserting or extracting implants, and social media (e.g., Facebook, YouTube, and Twitter.) The marketing budget is kept lean and often reallocated to other purposes. For instance, the company’s tradeshow booth was almost 10-years old until the department finally got the approval to upgrade it. The company’s lack of investment in its marketing initiative resulted in competitors spreading a rumor in the industry that Implant Direct’s manufactured its products in China. That was why the company could sell its products lower than its premium competitors. Furthermore, the competitors hit Implant Direct hard on the back-order and inventory management process. As a result, many doctors are skeptical about Implant Direct and the company’s ability to ship orders on time. Even though the rumor was not fully true, it has taken the marketing department a much longer time and cost much money to convince the doctors. The company is still responding to the customer’s inquiries regarding the past rumors.
Implant Direct’s marketing and sales are valuable resources to protect the company brand and reputation in the industry. Marketing and sales are not rare, inimitable, or difficult to substitute. Lack of attention to the marketing and sales has caused some damages to the company’s reputation and image among its customers. Marketing and sales are sources of competitive parity and support the differentiation and price (cost control) strategies.
Service
Implant Direct’s customer service department is open between 5:00 am to 5:00 pm Monday - Friday. On average, the customer service department receives thousands of phone calls from the customers to place their orders over the phone, check on the status of existing orders, or ask technical questions during implant surgery. The department consists of 30 employees who are usually excited to working there. The department has a KPI regarding their turnaround to answer phone calls. The department manager reviews the KPI number daily with his entire team. The department has also received multiple awards for their dedication, support, and willingness to support the company during the tough time due to back-orders and employee turnover.
Implant Direct’s service is valuable but not rare, inimitable, or hard to substitute. Due to the back-order issues, the department often receives difficult and angry phone calls from the customers. Service is a source of temporary competitive advantage and supports differentiation and price (cost control) strategies. That is, whenever a customer calls the 1-888-645-6429 number, someone (not something) answers the phone with an opening line “It is a great day at Implant Direct. I am Fawad Rashidi. How can I assist you today?” In doing so, they can differentiate Implant Direct from its competitors by providing excellent customer service support.
Support Activities
General Administration
The backbone of Implant Direct’s operations and manufacturing is the company’s Enterprise Resource Planning (ERP), which is responsible for integrating value-creating activities (e.g., what products to manufacture? How many quantities of a product to manufacture? How should the planning department forecast the manufacturing cycle accurately since it takes 4-months to complete the process? How to manage the shipping process?) As explained earlier, since the ERP system is not working efficiently, the company’s information technology does not generate adequate values to meet customer’s expectations.
Implant Direct’s general administration is valuable because it is considered the heartbeat and backbone of the company. It is not, however, rare, difficult to imitate, or substitute because Implant Direct is not utilizing the ERP system efficiently. The lack of investment in the company’s ERP system has allowed the company to outperform its ERP system. Most companies in the industry are utilizing more advanced ERP systems from Oracle and SAP, while Implant Direct, a $120M company, is still utilizing an ERP system that was designed for a $30M company. Implant Direct’s ability to utilize its Salesforce.com CRM system and ShoreTel telephony system allowed the company to provide excellent customer service. Whenever a customer dials-in, their calls are immediately routed through an automated system to the next available agent in the customer service and support center. As a result, the average wait time is just a few seconds. Implant Direct’s general administration is a source of competitive parity and supports the differentiation and price (cost control) strategies. That is, the company could differentiate itself by providing excellent customer service using Salesforce.com CRM. Since the CRM system and ShoreTel telephony manage the call center’s activities in the background, they ensure that the company is utilizing its agents effectively; in doing so, the company can save on costs.
Human Resources Management
Employee turnover at Implant Direct is at an all-time high. For the past two years, each month at least one employee leaves the company. According to the company’s HR exit interview survey, there are two key reasons why the company — especially the sales and marketing departments — are losing valuable employees: (1) employees are not happy with the leadership team of the company including their bonus and incentives, and (2) the company’s lack of attention to its information technology systems that result in back-orders, hence customer frustration. Regarding employee development, since the HR department is so busy with the overall company employee retention, they are not spending enough time to develop and train the employees who are staying at the company.
Implant Direct’s human resource management is not valuable, rare, hard to imitate, or difficult to substitute. The employee turnover has severely affected the company’s growth performance and employee productivity including morale. The human resource management is a source of competitive disadvantage. The human resource management is supposed to support the company’s price (cost control) and differentiation strategy. For instance, whenever a sales rep leaves the company, customers notice and become curious as to why so many reps leave the company. So, the employee turnover not only it is not helping the company to save on cost, but it also affects the differentiation (e.g., offering excellent customer service) and does not support a strategy type.
Technology Management
The R&D department works very closely with Key Opinion Leaders (KOL) to introduce new products and breakthroughs in the industry. KOL refers to a group of highly qualified dentists and educators at different universities who work with the manufacturing company’s R&D department. The R&D department maintains a positive collaborative relationship with the product development, marketing, sales, and operations. The R&D personnel are professional and have been working at the company for over five years.
Implant Direct’s R&D department is valuable because its personnel understand the industry and have stayed at the company for over five years. The R&D department is not rare, difficult to imitate, or substitute because other implant manufacturing companies also work with KOLs. Technology development is a source of competitive parity and supports the price (cost control) and differentiation strategies. The doctors and researchers within the KOL group not only helped Implant Direct to introduce new products or improve certain product features, but they also help the company save on training costs. The KOL doctors also provide training to the other doctors on how to perform the implant surgeries.
Procurement
Due to the Federal Food and Drug Administration (FDA) mandates for the medical device (implant) manufacturers and Danaher Corporation’s (Implant Direct’s parent company) supplier relations shipment management, Implant Direct follows a strict procurement process. That is, the company ranks its suppliers on an annual basis to ensure it receives the quality of service for the money it pays. Additionally, whenever Implant Direct onboard a new supplier, the company follows a strict procedure (internal documentations) to ensure the supplier can meet the company’s expectations.
Implant Direct’s procurement process is valuable, rare, and difficult to imitate as the company combined Danaher’s best practices, FDA recommendations, and its historical data and processes to improve its supplier's relationship continually. The procurement process is a source of temporary competitive advantage which supports price (cost control) strategy. That is, Implant Direct’s process and procedure for its supplier’s relationship is designed to continually negotiate with its suppliers and consolidate its suppliers to increase operating efficiency and lowering costs.
Value-Chain Diagnosis/Implication to Strategy
Implant Direct maintains several primary and support activities that are valuable to the company. For instance, inbound logistics, operations, outbound logistics, marketing & sales, service, general administration, technology development, and procurement are valuable sources. While some of these sources are rare (e.g., inbound logistics, operations, outbound logistics, and procurement), the rest of them are not rare, difficult to imitate or substitute. Additionally, Implant Direct’s high employee turnover has resulted in human resource management not being valuable and becoming a source of competitive disadvantage for the company. Other sources either support competitive parity or temporary competitive advantage. Once again, the company must act relatively soon since the threat of new entrant is medium, the bargaining power of buyers is medium and expected to grow, and industry rivalry is high. If the company does not act soon, it may soon lose its sources of temporary competitive advantage. Thus the company will not be able to provide value to its customers that they are willing to pay for what they receive.
Foregoing Implications of Strategic Issues
Per the information provided in this section of Implant Direct’s strategic analysis, the company must address several issues in its external, competitive, and internal environments to attain its competitive advantage.
External environment. Due to the demographic factors, the aging population is expected to grow. On the other hand, the U.S. government may not be able to cover the cost of dental implants surgeries. The macro economic factor implies that as the U.S. currency strengthens, the cost of export increase, which will cause issues to implant patients outside of the United States. The recent trade policy proposals, NAFTA and TPP, will further complicate the U.S. manufacturers’ ability to export their dental implants outside of the United States. The recent technological breakthroughs such as CAD/CAM and 3D Printing could potentially enable the manufacturers to custom produce patient specific dental implants, to increase the recovery time post-surgery while lowering the manufacturing cost. Thus, the external environment forces are highlighting the fact that dental manufacturing companies (e.g., Implant Direct) must pay attention to cost so they can pass on the savings to their customers. Additionally, manufacturing companies should utilize the technology system to differentiate themselves by custom producing dental implants specific to a patient to increase the recovery and implant success rate.
Competitive environment. New dental implant manufacturing companies are emerging outside of the United States, particularly from China. These companies offer their products much cheaper than incumbents. As a result, Implant Direct can no longer compete on price. Furthermore, the bargaining power of buyers is not high right now. However, as the consolidation among the buyers continues to join DSO entities, their bargaining power is expected to increase. As a result, Implant Direct may not have as much leverage as it does today to negotiate on price with its buyers. Rivalry in the industry is high as premium companies are acquiring smaller implant companies and lowering their product prices due to their economies of scale. On the other hand, the new entrants outside of the country are competing on price due to less expensive labor costs and easier access to raw materials.
Internal environment. Implant Direct has several resources that are valuable, but none of the resources are rare, difficult to imitate or substitute. In the past few years, the company has been experiencing a difficult time with its employee retention, especially in the sales department. The employee churn rate indicates that most people do not have trust in the leadership and are not happy with their overall compensation per HR’s exit interview survey. Implant Direct’s ERP system’s inability to accurately forecast stock and send monthly statements on time to its customers further complicates the process. As a result, customers’ orders are put on hold until the necessary items become available. Since the manufacturing cycle can take up to four months, some customers may need to wait that long until their orders arrive. Thus, the company spends a greater dollar amount in its sales and marketing to retain its brand image. Whenever a sales rep leaves the company due to the frustration with the company manufacturing and ordering process, customers who are used to working with the sales rep also stop their relationship with the company.